Day One Capital is one of the leading Hungarian VCs which aims to invest in the most exciting Central Eastern European startup teams.
Éva Réz, an Investment Director at Day One Capital, recently asked in an article whether VCs can be replaced by startup stock exchanges. Since her answers were quite open ended, I decided to ask her for more details. Here is the interview.
Eva, who are you? What makes you wake up in the morning?
I am an Investment Director at Day One Capital, which is a Hungarian early-stage investor (VC) with 12 portfolio companies at the moment. I am looking for talented teams with innovative ideas, technology and/or business model, who can grab my attention. If the right fit is there between us – the start-up team and Day One Capital – I am happy to prepare the investment decision and work together with these bright people. I am also very proud of having been a senior analyst at the Budapest Stock Exchange for five years, where I learned a lot and hopefully, contributed to the evolvement of the Hungarian capital market as well. Even for me, changing industries was a surprise, but I could find the beauty of both. New challenges keep me going.
You moved from stock exchanges to the startup world? Why? Are companies dead after IPO? What is more exciting about startups?
I gained a Fulbright scholarship in 2013, which I am very grateful for. Due to this opportunity I spent almost a year in San Francisco, in the heart of the real start-up buzz. It had a huge impact on me, and this is why I moved on. However, I really liked working at the stock exchange as part of a great team, and I still do think that regulated markets have a very important role in the economy. They help more mature companies further grow, enter new market segments or geographic areas by facilitating raising capital. While in the start-up world VCs enable newly formed enterprises to find market-product fit, build a team and an organization around it, and start to conquer the world, an IPO later on can help them continue a success story and become an important element of the economy. For instance, blue-chip companies in Hungary power economic growth, significantly contribute to the income of the state and create jobs for many people. We are talking about different models, but both of them have their own role. I changed from one end of the capital market to the other, because I was looking for new challenges. Moreover, I like meeting exciting ideas and open-minded, inspiring people, who want to build something big. I can get it in the start-up ecosystem and I hope I can contribute to it in my own way.
As an investor what are you looking at startups?
First, I want to know the people behind the story. Whether they are able to achieve their aims, execute their plans and make their dreams come true. Their background is very important: their carrier path as well as their entrepreneurial experience, not to mention their knowledge about their targeted markets and customers. Then I listen to these people whether they have something great on their mind and can sell it to me. And of course, I want to see the potential in the market they are planning to enter.
We both live in Central Europe, the CEE region. Do you think that unicorns can be built from here? Are startups here under-valued?
I hope and I actually see that unicorns can emerge from this region as well. Just to give you a few positive examples from my country: Prezi, Ustream, LogMeIn, MediMass and Distinction. People living in these countries tend to underestimate what they can actually achieve. Instead they should focus on their strengths – the CEE region is renowned for its IT experts and engineers -, identify what kind of skills and knowledge they are missing – typically sales and marketing -, and find the right people even from abroad, who can make their team complete. Valuation is a hot topic nowadays. We also hear that valuations across the ocean are insanely high. Everything is relative. I would rather focus on how the organic and steady growth of the venture’s business can be ensured with fresh capital (if needed at all), and how its cap table can be kept healthy. Still, it is probably true that the CEE region has an additional risk factor, which is probably priced in valuations.
What values do you give to startup founders except the money? How do you work with your portfolio companies?
As we are an early-stage investor, it is very important for us to have a close cooperation with our portfolio companies. I think this is the stage where having the previously mentioned chemistry between the start-up team and the investor really matters. DayOne can help with the professional background and extended network of its Partners and the experience coming from the already managed DayOne family. In addition, start-ups can benefit from our contribution to business development, recruitment and approaching investors for the next round.
What funding options do startup founders have except VCs? Is the funding infrastructure developed in the CEE region? What is missing? What could be improved?
They can receive capital from individual angel investors, incubators, accelerators or via crowdfunding campaigns. All of these types of investors have their own role and contribution. Besides money, angels can share their industrial knowledge with their investee, incubators and accelerators can give access to a basic infrastructure that early ventures need, they can help to educate startuppers, while crowdfunding campaigns can give validation for a product and used as a marketing tool. Day One Capital was founded in order to fill the gap in Hungary: to finance start-ups at seed stage. Now there are several funds targeting the same part of the start-up lifecycle in the country, but I still see this phase a problematic one, not only here, but in the whole region as well. Especially pre-seed financing, which means a real challenge for many talented teams. This is where wealthy and venturesome individuals could come into play. But I think this requires more education focusing on potential investors in this region, who are used to more traditional and probably less risky investment opportunities. Still, we cannot lump these countries together, because while some of them have a lot of public money available, which might even spoil the entrepreneurs, others do not really provide access to any kind of start-up financing. Fortunately, this can be balanced by cross-border investments. Diversity in business is important. Some investors, like DaveMcClure from 500startups, say that
investing in startups with female founders brings him higher profits.
How do you see this? Do you think a special fund, investment syndicate investing in diversified teams only in our region would show higher profits?
I do not know whether there is any correlation between diversity and profit. However, I definitely like the idea to build diverse teams, which can mean more women, people from various countries, cultures or team members of different generations on board. Diversity can bring success to a start-up by integrating several mind-sets, approaches and cultural aspects. But it also requires the team to be able to follow the same goals and operate along identical values despite variety.
I bet that there would be interest in a special fund dedicated to diversity. Moreover, start-ups with social impact can draw a lot of attention. These factors are very trendy, but it is still a question to me whether simply these ingredients themselves can guarantee a Lucullan feast.
With your hands on approach, don’t you regret not having an own startup? Should you find a company, what problem/s would you try to solve?
On the contrary, I really enjoy being in a position where I can get to know a lot of talented people and their world changing ideas, and help some of them on their way with what we have to offer. It is very exciting and inspiring at the same time. I believe that for now, I have found the perfect match between my own motivations and the aims of these start-up teams looking for funding and support. Of course, I have some ideas on my mind, which I might start to work on later on. These are all related to increase the happiness factor in people’s life, which is extremely relevant in the CEE region. But I am not giving away the details in advance.